Central Garden & Pet Company (NASDAQ:CENT) continued with its positive earnings surprise streak for the seventh consecutive quarter with better-than-expected second-quarter fiscal 2016 results. In fact, the stellar earnings and sales figures prompted management to raise its earnings outlook for the fiscal year. Organic growth, value accretive acquisitions such as that of the pet bedding business, and divestment of non-strategic assets have been helping the company to enhance its portfolio, thereby resulting in the improved performance.
The Zacks Rank #2 (Buy) company posted adjusted earnings of 65 cents per share that beat the Zacks Consensus Estimate of 59 cents and also increased 38.3% year over year. The better-than-expected results were driven by improved top-line performance and effective cost-containment efforts.
Management now envisions fiscal 2016 adjusted earnings to increase at least 49% to $1.10 per share or higher. Earlier, the company had projected an increase of 35% in adjusted earnings per share to at least $1.00.
Net sales of this leading producer of branded lawn & garden and pet supplies products grew 8.8% year over year to $541.2 million. The top line also surpassed the Zacks Consensus Estimate of $528 million, thus marking the fourth successive quarter of revenue beat.
Gross profit increased 12.8% to $169.3 million, while gross margin expanded 110 basis points (bps) to 31.3%. Central Garden & Pet reported operating income of $59.4 million, up from $9.4 million in the year-ago quarter. Operating margin expanded 100 bps to 11% in the reported quarter.
Segment Details
The Pet segment’s net sales surged 24.3% year over year to $257.3 million on the back of acquisitions as well as organic growth. Higher sales across the dog & cat and aquatics categories along with increased sales of other manufacturers’ products resulted in improved organic sales. Sales across the segment’s branded product and other manufacturers’ products came in at $216.9 million and $58.4 million, respectively.
The segment’s operating income soared 19.8% year over year to $32.4 million. Operating margin decreased 40 bps due to the negative impact of two newly acquired businesses.
Net sales at the Garden segment slipped 3.7% to $265.9 million as the company exited from a private label fertilizer customer relationship and the seasonal decor business. On the other hand, the company registered sturdy grass seed sales along with strong sales across other manufacturers’ products. Sales across the segment’s branded product and other manufacturers’ products came in at $216.9 million and $58.4 million, respectively. The segment recorded an operating income of $32.4 million in the quarter compared with $27.1 million in the year-ago quarter.
Financial Details
Central Garden & Pet ended the quarter with cash and cash equivalents of $9.8 million, long-term debt of $496.4 million, and shareholders’ equity of $531.7 million, excluding non-controlling interest of $1.2.
Other Stocks to Consider
Other favorably placed stocks in this sector include The Container Store Group, Inc. (NYSE:TCS) , Party City Holdco Inc. (NYSE:PRTY) and Prestige Brands Holdings, Inc. (NYSE:PBH) . All these stocks hold the same rank as Central Garden & Pet.
CENTRAL GARDEN (CENT): Free Stock Analysis Report
PRESTIGE BRANDS (PBH): Free Stock Analysis Report
PARTY CITY HOCO (PRTY): Free Stock Analysis Report
CONTAINER STORE (TCS): Free Stock Analysis Report
Original post
Zacks Investment Research